Commodity Trade Mantra

The Only Chart Of Employment That Matters

The Only Chart Of Employment That Matters

The Only Chart Of Employment That Matters

The most recent release from the Bureau of Labor Statistics on employment for the month of August was mostly disappointing.  Despite there being less jobs created than originally thought coming in at 169,000 both previous months of “super jobs reports” turned out to be not so “super” after all.  Most importantly, and the only thing that really matters, is that the labor force participation rate fell to the lowest level in the last 35 years.

Despite much attention to the headline number, where hope rests with each passing months job report that an economic recovery has arrived, the reality is much different.  With roughly 1 out of 3 people no longer counted as part of the work force, 1 out of 3 individuals dependent on some sort of social support program, and over 17% of personal incomes comprised of government transfers it is not hard to see why hopes of recovery remain high.

The all important Full-time Employment Chart

The only chart of employment that really matters is the number of full-time employees relative to the working age population. Full-time employment is what ultimately drives economic growth, pays wages that will support household formation, and fuels higher levels of government revenue from taxes.  If the economy was truly beginning to recover we should be witnessing an increasing number of full-time employees.  Unfortunately, that has not been the case.

Employment-FullTime-Claims-090613

As I stated in “The Labor Hoarding Effect:”

“Since the end of the recession businesses have been increasing their bottom line profitability by massive cost cuts rather than increased revenue.  Of course, one of the highest ‘costs’ to any business is labor. 

The problem that businesses are beginning to face currently is that while they have slashed labor costs to the bone there is a point to where businesses simply cannot cut further.   At this point businesses have to begin to ‘hoard’what labor they have, maximize that labor force’s productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion.

The issue of ‘labor hoarding’ also explains the sharp drop in initial weekly jobless claims.  In order to file for unemployment benefits an individual must have been first terminated, by layoff or discharge, from their previous employer.  An individual who ‘quits’ a job cannot, in theory, file for unemployment insurance.  However, as companies begin to layoff or discharge fewer workers the number of individuals filing for initial claims decline.   However, the mistake is assuming that just because initial claims are declining that the economy, and specifically full-time employment, is markedly improving.”

The problem is that employment gains are significantly lagging population growth.  In August the population of working age individuals, 16 and older, rose by 199,000 while employment only gained 169,000.  In other words, the increases in population lead to incremental demand on the economy and businesses respond by hiring only to meet demand increases rather than hiring on expectations of future growth.

With the onset of the affordable care act beginning in the next few months combined with higher taxes, interest rates and energy costs; it is likely that we will see weaker economic growth in the months ahead which will continue to weigh on employment gains.  The problem is that stronger economic growth is needed to drive employers to increase levels of full-time employment but it is full-time employment that leads to stronger economic growth.  How you solve that puzzle should be the sole focus of our economic policy makers.

 

Courtesy: Lance Roberts

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The views and opinions expressed herein are the author’s own, and do not necessarily reflect those of Commoditytrademantra.com or Moneyline.co.in.

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